People running social enterprises in Rwanda are increasingly concerned that there is no law governing social enterprises in the country which could have provided tax exemptions for their companies.
A social enterprise is an organisation that is directly involved in the sale of goods and services to a market, with specific social objectives that serve as its primary purpose.
It’s in that category that Elyse Habumukiza, Founder and Chief Executive Officer of Ingabe Yacu company which sells porridge flour enriched with carrots and beetroots to fight malnutrition among children, finds his organisation today.
Social enterprises are not volunteer organisations in that they operate as an enterprise by selling in a market, and can be registered as for-profit or non-profit although any profits made are principally used to fund social programmes.
In an interview last week, Habumukiza said he finds it difficult to scale up his mission to fight malnutrition in his community in Northern Province’s Musanze District because he has to pay taxes on income that his company makes.
He figures a law that governs social enterprises in the country should be put in place in order to make tax exemptions for companies that operate with a mission to find community-based solutions for poor and sometimes remote communities.
“There is no problem with paying taxes but then we need to use our revenues to support the communities we want to help. We should have a law that governs social entrepreneurship in order to allow us to sustain the business and promote the human-centred design model which is the right and stable way to solve community problems,” he told The New Times.
For any organisations to operate in Rwanda, they can either register to operate like Non Governmental Organisations (NGOs) through the Rwanda Governance Board (RGB), if they are non-for-profits, or as private profit-making companies through the Rwanda Development Board (RDB).
Habumukiza is worried that when an organisation is registered as an NGO, one has to indicate the source for their funding while social enterprises want to be able to raise money through business to promote their causes.
At the same time, he said that when a company is registered as private, it has challenges attracting money from donors and the burden on paying income tax comes across as not fair given its mission of supporting the community.
“People can’t donate money to my organisation because they think I am a traditional business yet I am not,” he said.
The social entrepreneur said that in the absence of the law on social entrepreneurship the government itself will have to establish its own programmes to help the people which presents a challenge because government can’t reach every village.
“There are people deep in villages who know their problems and hold the solutions for them at the same time. With a law on social enterprises, we can get exoneration from certain taxes and we can easily market our approaches which are normally based on ‘human-centred design model’,” he said.
In the jargon of social entrepreneurs, a human-centred design model is an approach where the problem solver and the people whom they are trying to help collaborate, initiate, and participate together to find the solutions for the community problems by using local resources.
Habumukiza’s company promotes anti-malnutrition programmes by using different approaches such as production and distribution of porridge flour made of carrots, beetroots, soybean, sorghum, and maize.
It also produces juice purely made of carrots, donuts and cakes, as well as fruit-made jam.
Another emerging social entrepreneur, Marie Ange Mukagahima, CEO and founder of Iteterogahima Enterprise, a company that processes pumpkins and sells its produce to promote better living, also says that having a law on social enterprises would be great.
“Social enterprises should be considered in legal terms and conditions of our country so that some burden is reduced, such as tax percentages, as we do business, which are very important for the majority of the population,” she said, adding that her company’s work is different from selling cigarettes and shouldn’t be taxed the same way.
Contacted for a comment, the State Minister for Constitutional and Legal affairs, Evode Uwizeyimana, said that social enterprises are very hard to define legally speaking although it’s a growing movement globally.
He indicated that the current legal framework in the country is able to accommodate them, explaining that so far organisations in the country can register as private companies, NGOs, or cooperatives, and that social enterprise can fit in some of those categories.
“So far, we don’t know anyone who sought to work as a social enterprise and failed to register their company. We don’t feel there is a legal gap yet,” he said in an interview last week.
But the minister added that debate on whether Rwanda needs a special law on social enterprises should continue in order to be considered by the government, which he said eventually initiate legislation once the need for it in society is established.
“We need a social enquiry to indicate whether there is need to initiate the law on social enterprises because any law is initiated to solve a problem in society,” he said.
Elsewhere, research conducted in Kenya and Vietnam in 2014 by researchers William Smith and Emily Darko found that social enterprises there faced special constraints linked to their hybrid business model.
Their challenges included difficulties accessing finance and human resources, lack of a clear legal status, and difficulties penetrating their markets and keeping sound management models.
On the legal framework, the research found mixed views in Kenya, with some organisations finding the existing situation that allowed enterprises the flexibility to register as either companies or NGOs good enough while others felt that the development of a new legal category for social enterprise would lead to greater government recognition and the possibility of preferential policies targeted at social enterprise.
Across the border in Uganda, social enterprises can register as NGOs, which as well leaves the debate open on whether they should have a special law or whether it suffices them to register as NGOs.